Making Money Alert
The Welcome Relief of Green Screens
07/16/2008
As I looked at my trading screen today I saw a lot of green. Green screens, of course, that indicate a market that's finally starting to trade higher.
To this I say -- it's about time.
After so many down days during the past few weeks, the welcome relief of green screens indicates that not all is lost on Wall Street. The sector showing one of the biggest spikes higher today is financials, which is particularly encouraging after a few weeks of difficult headlines about bank failures and the pending demise of lenders Fannie Mae and Freddie Mac.
Alas, finally some light at the end of the tunnel.
As you can see by the chart above of the S&P 500 Index, stocks have been kicked around now for some time. And while I think the fundamentals in the economy and in the market will keep stocks lower for a while longer, I do anticipate at least a snapback rally here such as we've seen today.
How long this rally will last is anyone's guess, but what investors can do to take advantage of the situation is play this market with differing strategies for the short term and the long term.
Over the long term, I think it makes sense to have a high-cash position. However, over the shorter term (weeks and months) it makes sense to try and trade into these snapback rallies.
One way to take advantage of the situation in this market is via my ETF Trader advisory service. During the past few weeks my ETF Trader service banked big percentage gains in two leveraged, short exchange-traded funds (ETFs). This week, we took a long position in an emerging-market economy that is starting to make a big comeback.
Folks, let's face it. It's not easy making green these days, but if you are smart about your purchases, you can capitalize on the changing tides in this stormy market.
ETF Talk: Why I Love Exchange-Traded Funds 3
Subscribers to my investment newsletters and trading services know about my passion for exchange-traded funds (ETFs). During the past several months, I have provided you with features relevant to investors who are looking to improve their portfolios with a variety of funds that are both diversified and cost efficient. Now, I want to get back to the basics of ETF investing with today's write-up, "Why I love Exchange-Traded Funds."
Before I get started, if you have any questions about ETFs that you'd like me to answer in an upcoming ETF Talk feature, please click here. Today's ETF Talk feature was inspired by a presentation I made in May at the 20th Annual Money Show in Las Vegas. This presentation, which I titled, ETF Strategies in a Difficult Market, highlighted why I love ETFs.
One of the top reasons I love ETFs is their modest cost. ETFs offer low expense ratios, and annual expenses typically are deducted from dividends. ETFs also produce fewer capital gains and are more tax efficient than mutual funds.
In addition, ETFs offer diversification that reduces risk. The funds typically track indexes that are made up of a basket of stocks. Investors can find ETFs that cover every major index, asset class, and sector. Whether you favor commodities, healthcare, technology or real estate, there is a diversified ETF available to you.
ETFs also are transparent, since they are required to disclose their exact holdings and the percentage of each asset that a fund owns. Because ETFs are traded on exchanges just like stocks, the funds provide liquidity to investors who want to buy and sell them in the open market. But remember to be sure a fund's trading volumes are adequate to provide liquidity. While not a strict rule of mine, I generally do not recommend ETFs that have an average volume of less than 100,000 shares a day.
Finally, I love the simplicity and variety of ETFs. You usually can find a bull market someplace, no matter what markets elsewhere are doing. The challenge is choosing the sector or the region that investors will begin to favor next.
In my advisory services, I analyze the moving averages of sectors and different stock markets to help determine the best places to invest. It is a system that has served three generations of the Fabian family well. Once you combine our trend-following approach with the instant diversification offered by ETFs, you gain the dual benefits of proven strategy and one of the most attractive investment instruments to be introduced in years.
Walking Away a Winner -- Final Thoughts
If you've been following the earlier installments in this series, you should know that there are options available to homeowners who find themselves with no equity. Please know that it is important for anyone who ends up on the wrong side of the real-estate downturn to investigate all of their options, get expert advice and make sound decisions. While it may be tempting to throw your hands up and quit, the long-term consequences are too significant to not make every effort to resolve the situation as positively as possible.
When considering those consequences, be aware that there are two primary negative impacts from a foreclosure. The first consequence is the possibility of financial liability after losing the home. Since the laws governing foreclosure vary greatly from state to state, you must consult a local expert familiar with the guidelines you will face. For example, California is a trust deed state that relies on non-judicial foreclosures. Without getting in to the specifics of what those terms mean, the bottom line is that a lender can not recover any losses resulting from the default of a mortgage used to purchase a home.
On the other hand, Florida relies on judicial foreclosures, which expose defaulting homeowners to the risk of a lender lawsuit seeking to recover losses. To complicate matters, refinance loans to take cash out -- especially home equity lines of credit -- are treated differently, allowing the holders of defaulted loans to seek damages from the borrower even after the home has been taken.
This is why it is critical that you consult a local expert familiar with the laws governing your state and your specific situation. But regardless of your state's laws, lenders are willing to negotiate and work with defaulting borrowers as a cooperative homeowner will result in a smaller net loss to the lender. Find a real-estate expert who knows the laws, knows the lenders and knows how to negotiate.
The second negative impact of losing a home is the affect on your credit. Looking back to the options available (loan modification, short sale, deed in lieu of foreclosure, foreclosure), the further you move down this scale towards foreclosure, the worse the impact will be on your credit score and the longer lasting the score reduction will be.
Since the credit bureaus are constantly tweaking their scoring models, it is very difficult to say how large an impact each option will have on your score. However, it is safe to say that avoiding foreclosure and any deficiency judgment will go a long way in terms of protecting your score and allowing it to heal as quickly as possible.
When someone is facing foreclosure, the thought of buying another home is likely the furthest thing from their minds. Eventually though, most people will want to own a home again someday. With the subprime market in shambles, a foreclosure will likely mean not being able to qualify for a mortgage for at least two years. In addition, you probably will need to get your scores back above 620. The less damage you do to your credit during the foreclosure or short sale process, the easier it will be to recover.
I know this is a difficult subject with many things to consider, but hopefully we have given you a better understanding of the options available, even in the direst of situations. While the decisions you end up making are very personal, we are here to help. If you have any questions on this subject, feel free to contact my real estate expert, Josh Lewis, via email or by phone at 888.944.5674.
The American Way
The American Funds is one of the biggest fund families in the nation with thousands of investors' assets in their care.
As a subset of my quarterly Lemon List, I have decided to profile the American Funds offerings. I have ranked these funds by Lemon Funds (the worst performers), Average Funds (the mediocre group), and Good Funds (those who consistently beat their benchmarks). I was not surprised to see that the number of funds is almost equally split between underperformers and outperformers.
As I tell my radio listeners nearly every week, you have to know what you own and you have to be monitoring the performance of your fund holdings on a regular basis.
This is especially in a bear market. The only way to make informed decisions about your retirement assets is to be informed. To find out more about my review of the American Funds, click here.
Guaranteed Monthly Income For Life? You Betcha! 6
This past Saturday, I held the latest installment of my retirement income conference call. Big thanks to all of you who called in with your great questions, and big apologies to those who couldn't listen live because the event had reached capacity.
Now, if you are one of those who couldn't get through on Saturday, or if you weren't available to attend the call that day, don't fret. You can here a FREE replay of the call right now, by clicking here.
In this call I discuss the many tools and vehicles you can use to produce a monthly income stream, and I show you how some products can offer you a 5% to 6% GUARANTEED return without losing control of your investments. These products are outstanding for taking a portion of your IRA or 401(k) and creating an income stream of $1,000, $2,000 or even $3,000 per month.
If you have an existing annuity and want to generate guaranteed income WITHOUT annuitizing your assets, then please listen to the replay of this informative discussion.
Remember, your assets will need to last you 20-30 years. You will need to create an income plan that will last as long as you do. We can help.
It's Hero Time
If I'd listened to everything that they said to me
I wouldn't be here
And if I took the time to bleed from
All the tiny little arrows shot my way
I wouldn't be here
The ones who don't do anything are always
The ones who try to put you down
And you could spend your entire life walking around
In the nowhere land of self doubt
Because when you start to doubt yourself the real world will eat you alive
It's time, it's time to align your body with your mind
It's hero time!—Rollins Band, "Shine"
The multi-talented singer, lyricist, poet, actor and spoken word artist Henry Rollins exerts us to be a hero with the lyrics from his song "Shine." When it comes to being a hero with your money, you have to forget about those who are trying to instill self doubt. You simply have to be confident in your decision-making abilities. With the right advice, and with an evolved sense of self, you too can shine.